Nathan Lustig

A View of the Internet from 1995

Category : Technology
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I just came across one of my favorite articles again today.  It’s a Newsweek feature from almost 15 years ago about whether the Internet would actually catch on or not.  The article, The Internet? Bah! Hype alert: Why cyberspace isn’t, and will never be, nirvana, attempts to bring a dose of reality to the “Internet craze” sweeping the nation.  Written in 1995, the author starts the article with this quote:

After two decades online, I’m perplexed. It’s not that I haven’t had a gas of a good time on the Internet. I’ve met great people and even caught a hacker or two. But today, I’m uneasy about this most trendy and oversold community. Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic. Baloney. Do our computer pundits lack all common sense?

Reading it now, the first part seems like it has to be an Onion article.  While most are laughable now, I don’t want to focus on what he got wrong.  Here’s a quick taste of some of Clifford Stoll‘s predictions from 1995:

  • “The truth in no online database will replace your daily newspaper”
  • “No computer network will change the way government works”
  • “You can’t tote that laptop to the beach”
  • “We’ll soon buy books and newspapers straight over the Intenet. Uh, sure.”
  • We won’t be able to find the information we want
  • The Internet won’t be useful in government
  • Computers in schools? “Bah. These expensive toys are difficult to use in classrooms and require extensive teacher training.”
  • “We’re promised instant catalog shopping–just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obselete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month? Even if there were a trustworthy way to send money over the Internet–which there isn’t–the network is missing a most essential ingredient of capitalism: salespeople.”

He was clearly wrong about pretty much everything in the first section of the article, but I think he gets the second part partially correct:

What’s missing from this electronic wonderland? Human contact. Discount the fawning techno-burble about virtual communities. Computers and networks isolate us from one another. A network chat line is a limp substitute for meeting friends over coffee. No interactive multimedia display comes close to the excitement of a live concert. And who’d prefer cybersex to the real thing? While the Internet beckons brightly, seductively flashing an icon of knowledge-as-power, this nonplace lures us to surrender our time on earth. A poor substitute it is, this virtual reality where frustration is legion and where–in the holy names of Education and Progress–important aspects of human interactions are relentlessly devalued.

I think he was right that ultimately, online connections are indeed “limp substitutes” for the real thing, but he missed that the Internet could help people make connections with people they never would have had the chance to meet in their non-Internet lives.  I’ve made connections with people though my blog, facebook, twitter and other networks like Brazen Careerist, who I never would have run across if I weren’t online.

This article brings up another interesting issue.  People love this article now because Stoll was so wrong about so many things.  How will people in my generation look 15 years from now?  We have created huge amounts of content on blogs and social networks, much more than previous generations.  Much of this content contains strong options.

Surely many of us will be as wrong as Stoll was in his Newsweek article.  In 1995, Stoll’s article was fairly reasonable.  He was well informed, involved in the industry and took a strong stand on an issue he believe in.  Unfortunately, today it looks ridiculous.  There is no way Stoll could run for office and win.  His opponent would have more fun than Republicans who make fun of Al Gore for “inventing the internet.”

If an informed stakeholder can get something so wrong, isn’t it likely that most of us will probably write something that will be completely wrong 15 years down the road?  Will articles like these preclude us from running for office?  How about getting a job?  Should we be worried about how history will view our blog posts?

Like unflattering pictures posted online, I hope that blog posts that history proves to be wrong are forgiven.   As long as the posts were well written, logical and thought out, posts where we are wrong should not count against us.  Knee-jerk reactions or Glenn Beckesque rants SHOULD be held against the writer.  If not, we will have some boring future leaders who weren’t even willing to take a stand when they were young!

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To Office or Not to Office?

Category : Entrepreneurship
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I’ve always been a proponent of working from anywhere.  I ran my first company completely remotely while in college.  When I was 19, I worked out of my room, usually sitting on my bed, surrounded by paper, music playing from my ipod, laptop on my lap.  My friends jokingly started to call my bed my office.  That got a little awkward when I had to start meeting potential investors and clients.  Going to coffee shops all the time instead of going back to my “office” was a bit of a challenge.

My partners and I continued to work out of our respective bedrooms for the next three years.  We hired two programmers, one who was local in Madison and one from Poland.   It was great.  We were able to save money by not spending on an office, work from home, and stay warm in those long Wisconsin winters.  We were productive and grew our business from about 15,000 users to over 125,000.   We were able to raise six figures from investors, all without getting an office.

In our third year, we were asked to meet up for an interview about starting a business in college.  We all went over to one of my partners’ houses for the interview.  My two partners and I were joined by our US based programmer.  We quickly realized that it was the first time that we were all in the same room, even though we had been working together for almost three years.  There had been just about every other combination, but never all four of us in one place at a time.  It was pretty amazing to see that we could run a successful company without ever meeting in person.

After we were acquired, we all talked about whether we should have gotten an office earlier or not.  I was always happy to work from home and save the money.  One of my partners was a big proponent of getting an office and believed that we would have been more productive if we had been in an office earlier.  After the acquisition, Corey Capasso, my partner who had wanted an office, moved to New York City to pursue his new company, Add The Flavor, a company that infuses flavor inside plastic.  He quickly got an office in Manhattan and got to work.  He kept calling me and emailing saying how much more productive he was now that he was in an office.

I stayed in Madison and founded my current company.  My co-founder, Jesse Davis, and I resisted getting an office.  We worked from our house, the business school and the Union Terrace.  I began to call the terrace “my office” and we worked outside with the beautiful view of Lake Mendota all summer.  One of my friends called me one day to tell me that “someone was sitting in my office.”  We were productive and worked well without an office, but we decided that we were not being as efficient as we could.  With Corey’s constant emails about how much better it was to work out of an office in the back of my mind and the business progressing nicely, we started to look for some space.

We ended up getting a great deal on some space in downtown Madison that was too good to pass up.  We had looked at multiple business incubators, but finally settled on sharing some office space with another young Madison company because we wanted to have connections with other startups, they had the best location and they had the best price.

We moved in and our productivity increased noticeably.  We filled the walls with tile board or what I call poor man’s whiteboards and our brainstorm sessions were much better.  We spent less time sending documents back and forth and increased our productivity in just about all aspects of our business.  Getting an office has been one of our best decisions so far.

So when should you get an office and how do you still make sure that you’re not just getting an office for the sake of an office?

I think it’s time to get an office when you are about to raise money.  This does not have anything to do with actually taking money, but it serves as a good proxy for when you you are about ready.  Every startup is different, but if you can do all of our business planning and initial programming before getting an office, you will come out ahead.  If you are raising money, it usually means that you have written a good business plan, done a good amount of initial research and pitched your idea to variety of people.

It’s also important to note that just because you have an office, you don’t have to turn into an 9-5.  My partner and I still work from home when we are too tired to come in, have other things we want to do during the day or simply want to work by ourselves for the day.  Getting an office does not trap you if you don’t let it.  It’s not like getting an office makes you automatically have a boss, stuck in a cubicle.  Try to find an office within walking distance of your house.  It will allow you to go back and forth and give yourself flexibility that you need in a startup.  Don’t spend a ton of money on your space.  All you need is a place to hang some white boards, get wireless Internet and work without the distractions that can happen at home or in a coffee shop.

What have your experiences been with working from home or at an office?  When do you think is the right time to get an office?  What sorts of characteristics do you look for in office space?

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Raising Money from Family and Friends

Category : Entrepreneurship
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It’s really easy to find information about raising money from angel investors or VCs, but many people neglect another important way to fund your startup: raising money from family and friends.

There are pros and cons to raising money from family and friends, but for your first round (especially in your first company), I think that the pros outweigh the cons (if your family can afford it), especially if you follow some common sense rules so that you can still go to your family reunions.  It seems to me that many in the startup world look down on companies that are funded by family and friends.  I think that’s a mistake.  I’m writing this post because I wanted to share my experience raising money from family and friends so that others can see it is a viable option.

When it came time to raise money with my first company, I had the choice of whether to try to raise money via angel investors or from family and friends.  After doing some research, I decided that family and friends was the route I wanted to take.  We were able to raise six figures fairly quickly from a good group of investors, which helped us stay focused on running our business instead of raising money.  Whereas many angels and angel groups would have wanted to get to know us for 3-6+ months, we were able to close our round in about 6 weeks.

How were we able to raise money quickly?  How do you actually go about approaching family and friends for money?  What if your family doesn’t have much money?  Why should you do it and why are they better than angels/vcs?

We were able to raise money quickly because we wrote a detailed business plan, did our research and found people who were willing to believe in us.  At first, we wrote a 2 page executive summary of our business that included how much money we were trying to raise, our valuation, how much 1% of the company would cost, why we needed the money and what we planned to do with it.  This exercise helped us really figure out how to tell our family and friends what we were doing.  It is especially important to avoid the curse of knowledge when writing your business plan, but its even more important when the investors are your family and friends.  Next, we developed our full business plan, making sure to be as clear as possible.  We made it clear that we were asking for investment in exchange for ownership in the company, rather than loans.

Next, we talked to our lawyer about how to raise money.  He helped us write up an offering summary, amended our operating agreement to allow us to take on investors and filled out all of the necessary forms for the government.  He also helped us add to our business plan to make it more understandable to non-tech people.  Our professionals that were working with us (lawyers, accountant, professors) were able to point us in the right direction of people with money.  This is even more important if your family does not have the resources to invest in your startup.

All of our investors were accredited investors, which means that they have net worth of at least $1m or a yearly salary of over $300k.  Accredited investors helped us in two ways.  First, since they were high net worth individuals, they could afford to take the risk of losing their money.  While we were confident we were going to be successful, we still knew we could fail and lose our investors’ money.  Second, having all accredited investors meant less paperwork for us and our legal team.  Having accredited investors helped us avoid the mistake that some people make: raising money from people who cannot afford to lose it.  This is a huge mistake, even if you think you are going to be successful.  It is the quickest and surest way to give yourself way more stress than you need and get yourself taken off their holiday card list.

We were up front with our potential investors.  While we were confident we were going to be successful, we told the investors that the worst case scenario involved them losing 100% of their investment.  We told them that they might not be seeing a return on their investment for 3+ years and tried to think up scenarios that would cause these bad outcomes to happen.  It was clear that our investors were more comfortable with us once we showed them that we had done our homework and were not simply selling them snake oil.  Don’t make promises you can’t keep just to get someone to open their checkbook.  They will not be happy with you when you are not fulfilling your promises a few months down the road.

Make sure you don’t set your valuation too high.  While you are trying to get a good deal for your business, you want to make sure that your investors are getting a good deal as well.  After all, they are your family and friends.  Another key is to not take too much money from one single investor.  In my first company, our biggest chunk from one single investor was $70,000.  While we ultimately made him money and he could have afforded to lose his investment, it would have been more comfortable for everyone involved to have gotten a little less from one single source.  It’s also not the end of the world if one of your potential investors turns you down.  Don’t press for money from someone who is uncertain because they will be the first to complain when things are not going as well as you had hoped.

Many angel investors will tell you that their investment comes with connections that you will not get from your family and friends.  While there is some truth to this statement, I think that it is overrated.  Your family and friends will get you money more quickly and be more willing to take you at your word.  A family and friends round will also set you up nicely for a second round from an angel or VC if it is necessary down the road.  If you can show that your family and friends believe in you, it gives you credibility.  If I see a startup without some amount of family and friends money, I wonder “wow, this guy couldn’t even get his Mom to believe in him, so why should I?”   It brings up questions in my mind, but is not a deal breaker.

I have had good experiences raising money from my family and friends and I think more people could benefit from thinking about going this route, rather than just thinking about angels/vcs.  Check out my list of Dos and Don’ts and Pros and Cons of raising money from family and friends below:

Do

  • Write a simple executive summary and longer business plan
  • Be upfront and honest about potential losses
  • Be honest about the time horizon for payoff
  • Make sure your investors can afford to lose 100% of their investment without any hard feelings
  • Seek out accredited investors from your professionals

Don’t

  • Oversell yourself, your company or the opportunity
  • Underestimate risk
  • Take too much money from a single source
  • Set your valuation too high
  • Get mad if they turn you down

Pros

  • Raise money more quickly
  • Better valuation and less stress than angels/vcs
  • Potentially make your family/friends money
  • Easier to get money than from angel groups for first time founder

Cons

  • Can be awkward if you fail
  • Doing business with family/friends can be nerve wracking
  • No network

What do you think?  Have you had experience raising money from family and friends?  What did I miss?

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October Book Reviews

Category : Books
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I only had time to read two books in October, but they were both interesting and well worth my time.  One was fiction and one was non-fiction.   Check out my reviews from past months here.

SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance – Steven Levitt and Steven Dubner.  SuperFreakonomics is a great follow up to the Stevens’ first effort, Freakonomics.  If you enjoyed Freakonomics, you will love SuperFreakonomics.  They tackle all sorts of problems with data, which you hardly ever see in most other walks of life.  Ever since I read Freakonomics, I’ve been fascinated with the way they look at problems and issues and I’ve been reading the Freakonomics blog in the New York Times daily.  In SuperFreakonomics, Levitt and Dubner tackle emergency room safety, the efficacy of child car seats, prostitution and most controversially, global warming.  They also present some amazing history about this history of vaccines, car seats and health care in their trademarked, data driven, but still humorous style.

I won’t ruin any more of the book for you, but there has been a huge outcry from the global warming establishment about SuperFreakonomics’ take on global warming.  Dubner and Levitt say that global warming has become a “new relgion complete with dogma and good and evil.”  They have been proven right because they were immediately criticized by the global warming establishment when the book was released.  I liked the way they tried to bring reason and science back to the global warming debate and move it away from political, religious debates that it has become, but was suprised that they advocated so hard for geo-engineering.

Levitt and Dubner (and I) love to point out that most of our problems come from unintended consequences of well meaning policy decision.  Many times, these unintended consequences could have been predicted ahead of time, but weren’t looked at for a variety of reasons.  They advocate geo-engineering the planet, but don’t take any time to talk about the potential unintended consequences.  There may not be many (but I doubt it), but I was expecting them to address the issue at least a little bit.  That said, SuperFreakonomics is entertaining, informative and well worth reading.

Absurdistan – Gary Shteyngart.  Not many books can make me laugh out loud.  I was on a flight to NYC, reading Absurdistan and trying not to laugh out loud and failed fairly miserably.  Absurdistan is the fictional story about a young, Jewish, fat, son of an oligarch, Russian immigrant to New York City and his trials and tribulations going between Russia, the US and Absurdistan, a fictional country located near Iran.  I read it on the advice of of someone who likes many of the same books I’ve read and wasn’t disappointed.

Shtyngart’s writing is really fun.  He mixes in hip hop references with geopolitical feelings musings that would only occur to a Russian who moved to the US.  One of my favorite parts is about how people in the 3rd world applaud whenever a pilot safely lands a plan “as if it were some kind of miracle”, whereas in the West, people complain about being late and rush to get off.  The section on a Holocaust Museum in Absurdistan is brilliant writing and worth reading on its own.  The books is a scathing critique of just about everything from Russian politics, American foreign policy, fat people and corporations.  While a little slow in places, each chapter has at least a gem worth finding.  I recommend reading this book if you like history, politics, different cultures and good writing.  As a bonus, after reading Absurdistan, Oscar Wao and The White Tiger, I now know how to say a certain part of the male anatomy in Russia, The Dominican Republic and India.